Loan types and Rates for home equity loans

Many of us have become stricken with panic due to the late economic situation which has spread across the nation. We all see the mighty financial institutions brought to their knees under the weight of the bad decisions that they themselves made over the last decade or so. And what do most of these bad decisions involve? Lending, more specifically, mortgages and home loans. Because of this people are scared they do not want to borrow money at all, let alone use their homes as collateral. However, this mentality is unjustified, and in actuality it is because of this economic crisis that for many, this may be the best time to borrow.

Now, if you want to put an addition on your house, or something else of that nature but don't have fifty thousand bucks in your account, the best option is still a home equity loan. However, many people are afraid because of current affairs. Just take a step back and examine the situation for a moment. The real reason this whole thing started is because most of the financial institutions have given out unsafe loans in other words they lent more money to people than they should have. Either people couldn't afford the loans, or their properties were over valued. Now, more than ever, lenders are going to make certain that people CAN afford the loans they are approved for. Therefore, if you get approved for a home loan, most likely you can afford it.

Rates for home equity loans

Hopefully that fact has relieved you of some of your initial concerns. Now we need to take a look at the different kind of loans that there are, and, the dreaded most important factor, the corresponding RATES! The prime rate has been lowered by the federal government several times over the last year and it is now at a rock bottom low of 4.50%. This, however, does not necessarily mean that all of the rates have dropped so dramatically.

In fact, the rates for home equity loans have even gone up a little over the last few months. It all depends on where you apply for a loan, what your credit is, and how much you are looking to borrow.

Some of the large lending companies still offer good rates, but many local banks are also competitive. Some of the best rates I've seen in the New England area are available at Citizens Bank, which has also expanded to the Midwest in the purchasing of charter one. They offer a ten year loan with an APR of 7.49%. Citibank also features the same low rate. The twenty year loan features a rate that is a little higher at 8.09%. However, after some research, I found Sovereign Bank, another New England bank, offering a 20 year fixed with a rate of 7.59%. These rates will be higher for several reasons: a bad credit score, if the loan to value of your home is over 80%, the amount of money you are looking to borrow. In general, larger loans means that banks make more money and therefore the larger your loan, the better your rate. Essentially though, the best rates now are somewhere in the 7.5% to 8% range.

However, these are only the home equity fixed loan rates. The best option at this time is really a home equity line of credit. Unlike the previous loans mentioned, these feature a variable rate (gasp!). People are usually scared of variable rates they think that the bank can suddenly say, wait your loan is now 15%! This is not true. Variable rates fluctuate according to the prime rate, which I mentioned is at a rock bottom low of 4.50% and not looking to go up any time soon. With a line of credit, the rates are considerably lower. The best rates in this category right now are featuring about prime -.01% to prime -.26%. And if the prime rate does go up, you can always just refinance. Actually, my good old friends at Citizens Bank, amidst this crisis, were offering the "employee discount" on their lines of credit, giving all customers an additional .5% off the rate! This means you can get a line of credit as low as 3.76%! I'll take that rate over 8% any day.!

The real beauty of a line of credit is you only pay back what you use.

Unlike a home equity fixed loan, where you just get $100,000 dumped into your checking account, with a line of credit you have it available to use if need be. So you can use $20,000 for a porch or even $10,000 for a super low auto loan and only pay back that much. You'll still have the $80,000 or $90,000 available for when you need it. The real reason that this is actually the best time to apply for one is simple. If you are at all afraid of loosing your job during this economic turbulence, get approved for a loan now while you can. If you're not making any income, you won't be able to get a loan. However, having that extra money available will be priceless if you loose your job and need it, especially at under 4%.